UIP deviations: Insights from event studies

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dc.coverageDOI: 10.1016/j.jinteco.2024.103877
dc.creatorAlbagli, Elias
dc.creatorCeballos, Luis
dc.creatorClaro, Sebastian
dc.creatorRomero, Damian
dc.date2024
dc.date.accessioned05-01-2026 18:14
dc.date.available05-01-2026 18:14
dc.description<p>We evaluate the behavior of the UIP relationship around monetary policy and global uncertainty shocks using event studies. We find that the covariance between exchange rate movements and changes in long-term yield differentials is conditional on the nature of shocks. A model of partial arbitrage between domestic and US bond markets predicts that tighter US monetary policy appreciates the dollar while increasing US yields relative to domestic bonds, a response that is consistent with UIP forces, while global uncertainty shocks appreciate the dollar while raising domestic yields relative to US bonds, exacerbating the widely documented UIP violation. The empirical analysis supports these mechanisms, specially for developed economies. For emerging economies, both relationships are weaker, consistent with more pervasive currency stabilization policies that mute the FX response at the expense of higher volatility in longer yields. Our results suggest a more nuanced interpretation of the unconditional failure of the UIP.</p>eng
dc.identifierhttps://investigadores.uandes.cl/en/publications/c3ec6ad5-3e87-4a59-b0fe-41983577a735
dc.languageeng
dc.rightsinfo:eu-repo/semantics/restrictedAccess
dc.sourcevol.148 (2024) date: 2024-01-08 p.1-29
dc.subjectEvent studies
dc.subjectLong-term yields
dc.subjectUncovered interest parity
dc.titleUIP deviations: Insights from event studieseng
dc.typeArticleeng
dc.typeArtículospa
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